DALLAS — Texas' new leaders will have more money to work with as the 2015 Legislature begins work on the state's next budget.
The higher official revenue projections come even as the slumping price of oil casts a shadow over the Lone Star State's economy.
Gov.-elect Greg Abbott, Lt. Gov.-elect Dan Patrick, and Comptroller Glenn Hegar all campaigned on themes of tax cuts and reduced regulation of industry while oil prices were beginning to decline. Since June, the market price of a barrel of West Texas Intermediate crude has dropped by more than half.
Many of the Republican lawmakers who control the Legislature campaigned along similar conservative lines with an anti-government tinge. Patrick, who will preside over the state Senate, cited conservative social issues such as gun rights as part of his agenda.
"I'm counting on the Republicans to lead, and I hope the Democrats will join us in addressing issues many of their constituents feel strongly about," Patrick said.
The only bill that the legislature is required to pass in its biennial session is a budget, and Hegar's estimate of the revenues available for the remainder of the current fiscal year and the next biennium beginning Sept. 1 provides the basic outline.
In his first
Texas "recovered well from the recession of 2008-2009 and witnessed strong economic growth well ahead of the rest of the country," Hegar said.
"We're all well aware that oil prices have dropped significantly in recent months," he said. "Lower prices will likely lead to significant slowing in oil exploration/production, and has dampened our economic forecast."
The state should end the current fiscal year on Aug. 30 with a balance of $7.5 billion, Hegar said.
"This projected ending balance reflects better-than-expected revenue collections, including the positive effects of robust oil and natural gas activity over the past several years," he said. "The ending balance also reflects reduced state spending, notably from strongly rising local property tax collections by school districts which serve to supplant state funds for public education purposes."
The state is expected to collect $72.9 billion in federal funds during the 2016-17 budget period, Hegar said, with revenue from all sources reaching $221 billion.
If the legislature does not appropriate any money from the rainy day fund, made up of oil and gas revenues, the fund is expected to reach $11.1 billion by Aug. 30, 2017, Hegar predicted.
Increased oil production contributes directly to growth in state revenues through taxes paid by producers and indirectly as a result of increased economic activity attributable to the industry, Hegar said.
"Recent declines in oil prices, if sustained over time, will result in slower growth in revenue collections than we have seen in recent years," he said. "This revenue estimate anticipates a moderated yet expanding Texas economy and revenue collections through fiscal 2017, in part due to the uncertainty around oil prices and the possibility of slow global economic growth."
As Hegar was presenting his forecast, the price of oil continued to slide, with WTI crude for February delivery down $1.94 per barrel to $46.42, a drop of 56% from the June 2014 high of around $107 per barrel.
Monday's drop followed a reduction in Goldman Sachs' three-month forecast for WTI crude to $41 a barrel from a previous estimate of $70. Goldman analysts see WTI at $39 a barrel in six months and $65 a barrel in a year, versus previous price forecasts of $75 and $80, respectively.
Hegar's revenue estimators are more optimistic, anticipating the average price of oil at $64.35 in the current fiscal year, and $64.52 in 2016. The price is expected to rise slightly to $69.27 in 2017. Hegar's predecessor as comptroller, Susan Combs, was criticized for estimates of oil prices that some considered too low.
In fiscal 2014, rising production and higher prices saw oil production and regulation tax revenues increasing in Texas to $3.87 billion, surpassing the $2.99 billion record set in the previous year.
"The total production of oil in Texas, greatly affected by these prices, is expected to increase slightly in fiscal 2015, then flatten in fiscal years 2016 and 2017 as the production from new wells still being drilled just offsets the normally-occurring declines in existing well production," Hegar and his staff wrote in the revenue estimate.
State taxes are expected to yield $97.8 billion during the upcoming biennium, contributing 89% of total net revenues, Hegar said. Compared with the $92.2 billion collected in 2014-15, total general revenue-related tax collections in 2016-17 are expected to increase by 6%.
The state's largest source of tax revenue is the 6.25% limited sales and use tax on products and services.
Sales tax revenues are forecast to reach $28.96 billion in fiscal 2015, a 6.2% increase from 2014, Hegar said. Collections are then expected to rise by 2.5%to $29.68 billion in 2016, and by another 6.4% to $31.57 billion in 2017.
The 2016-17 biennium total sales tax collections of $61.25 billion represent an 8.9% increase over anticipated 2014-15 collections of $56.23 billion, Hegar said.
Subdued by recession then stimulated by the fracking boom, sales tax revenues were subject to erratic swings in the previous years, Hegar said.
After contracting by 2.7% in fiscal 2009 and by an additional 6.6% in 2010, sales tax revenues rebounded by 9.4% in 2011 as economic recovery strengthened.
In 2012, Texas sales tax revenues surged by 12.6%.
"This volatility in sales tax revenues has been more pronounced with respect to business spending, particularly in oil and natural gas-related sectors, than with respect to consumer spending," Hegar said. "In view of the recent steep decline in the price of crude oil, spending on taxable items used in oil exploration and production is expected to fall sharply. This will dampen the rate of growth in total sales tax revenues even as the broader economy continues to expand."
The surplus is expected to fall as lawmakers apply the funds to the current budget during the session.
This year's supplemental budget is expected to include a large payment to cover a Medicaid shortfall in the current budget.
The Center for Public Policy Priorities in Austin has estimated that lawmakers will need to increase general spending from the current $95 billion to $101 billion to maintain the state's current level of services.
The revenue estimate comes as Texas' longest-serving governor Rick Perry prepares to leave office after 14 years, giving way Jan. 20 to Abbott, who defeated Democratic State Sen. Wendy Davis Nov. 4.
Abbott has called for an additional $4 billion of spending on state highway projects without increasing tolls or taxes.
Abbott's state of the state speech this week is expected to be upstaged by Perry's decision to make a farewell address to the Legislature as he considers plans to run for president again in 2016. Perry made the Texas economic recovery the centerpiece of his 2012 presidential run.
